Factors of Production

• Factors of production


  All economic resources that are used in the production of a good or service
• Land


  The naturally occurring resources that are used to produce a good or service, including physical land, water bodies, and the atmosphere
• Land


  • Fixed in supply
  • No cost of production
  • Geographically immobile
• Labour


  All human efforts used in the production process
• Labour


  • Human factor
  • Worker is the supplier
  • Cannot be stored
  • Geographically and occupationally mobile
  • Not homogeneous
• Division of labour


  A large task is split up into smaller more manageable tasks
• Specialization of labour


  A person does a task repeatedly and becomes an expert at it
• Labour force


  The number of persons in an economy of legal working age who are willing to work
• Labour supply


  The total number of hours that people are willing to work, dependent on the size of the population, percentage willing to work, and number of hours worked by each individual
• Capital


  Any man-made goods used to produce other final goods
• Capital


  • Man-made
  • Homogeneous units
  • Mobility varies
  • Can be imported
• Types of Capital


  • Working capital (raw materials and intermediate goods)
  • Fixed capital (factories and machinery)
  • Social capital (infrastructure provided by government)
  • Human capital (knowledge, skills, attitudes, aptitudes and characteristics of a person)
• Entrepreneurship


  The act of taking the necessary risks required to combine the factors of production in order to operate a profitable business
• Production


  The process of converting raw materials into finished products by utilizing the factors of production
• Productivity


  The output per unit of input, e.g. labour productivity = no. of items produced / units of labour
• Rewards for factors of production

  • Rent for land
  • Interest for capital
  • Wages for labour
  • Profit for entrepreneurship